As a self-employed person, you might not have
to deal with tyrannical bosses or office politics. But in exchange,
you’ve got to deal with the caprices of an unstable income.

To make matters worse, the lack of
employer-sponsored health insurance and compulsory CPF
contributions can put you in a financially precarious situation
later on in life.

But if you’re independent enough to be
self-employed, you’re surely resourceful enough to take advantage
of these five government policies.

Medisave contributions

While CPF contributions are generally not
compulsory, Medisave contributions are. After filing your taxes
every year, you will receive notice from CPF about your Medisave
contributions for the year, which you must then transfer into your
Medisave account before a deadline of 30 days.

Since you’ve got to make those Medisave
contributions whether you like it or not, make sure you know when
and how you can use your Medisave funds so you can benefit as much
from them as possible.

We’ve put together a complete guide on
Medisave here, where you can find out what you can make
Medisave claims for.

For starters, it’s a good idea to buy an
Integrated Shield Plan, which is a medical insurance plan that
works together with MediShield Life to give you better medical
coverage than the very basic protection the latter already gives
you. Part of your annual premiums can be paid for using
Medisave.

It’s important to make your Medisave
contributions regularly and on time each year. That’s because if
you pay late, you’ll also be made to pay the interest your
contributions would otherwise have earned.

It’s a good idea to start saving up your
estimated Medisave contributions early on in the year, so you don’t
get a rude shock when you suddenly need to pay thousands into your
Medisave account.

If
making CPF contributions, put aside money every month, not just at
the end of the year

CPF contributions are compulsory for salaried
employees and deducted monthly from their salaries. But for
self-employed people, making contributions to your CPF Ordinary
Account and Special Account is totally optional.

We’re not going to say that you should
definitely make CPF contributions as a self-employed person. If
you’re the type who doesn’t have the discipline to save and invest
on your own, it’s probably better for you to put aside money in
your CPF OA and SA. But for those who are avid savers and
investors, it’s your call.

If you have decided to make CPF contributions,
it’s a good idea to put aside a cut of your earnings every month
and pay them immediately into CPF, rather than waiting till the end
of the year or when you file your taxes.

Another bonus of making your CPF contributions
as early as possible is that you can take advantage of the interest
rate, which will surely be higher than what your savings account
offers.

Know what tax relief you are
entitled to as a self-employed person

Tax relief on Medisave
contributions

As a self-employed person, you’re entitled to
tax relief on compulsory and voluntary CPF and Medisave
contributions.

That means that if you can afford to, you can
actually make more contributions than necessary if you think that
will put you in a lower tax bracket next year.

Other tax deductions

You may also be able to make tax deductions on
the following:

Employee expenses if you’ve hired someone to help

Business expenses

Productivity and Innovation Credit (PIC)

Capital expenditure incurred on renovation or
refurbishment works

Capital allowances on fixed assets

Medical expenses

R&D expenditure

Land intensification allowance

Expenses incurred before commencement of business

Business making losses and unabsorbed capital
allowances

Business and iPC Partnership Scheme

Double tax deduction for internationalisation scheme

Grants that help you upgrade your
skills in the industry and thus charge more for your
services

The government offers grants for certain
categories of self-employed people so that they can upgrade their
skills at a low cost and then charge more for their services.

Training allowance

If you are 35 and above and earning $2,000 or
less a month, you can also get a training allowance of $4.50 for
each hour of training when you sign up for a WTS qualifying course
on your own dime.

Training Commitment
Award

Successfully completed a WTS-approved course?
You might be eligible for a reward amounting to up to $200 per
course, capped at a maximum of $400 per year.

Understanding TDSR and MSR and the
cuts that self-employed folks are subject to when applying for
loans due to income

Like most Singaporeans, you probably hope to
buy a home someday.

Unfortunately, as a self-employed person,
you’re at a disadvantage when it comes to applying for loans.

TDSR

The Total Debt Servicing Ratio (TDSR) is a
rule which limits how much you can borrow to buy a home.

For salaried employees, their total debt
repayments (including not just home loan repayments but also
repayments of other loans like study loans, car loans and credit
card debt) must be not more than 60% of their gross monthly
income.

For self-employed persons, the rule is even
stricter. When you declare your income, it will be reduced by 30%
before the TDSR is applied.

Therefore, if you earn $5,000 a month, it will
be taken as only $3,500 for purposes of applying the TDSR. That
means your total loan repayments must not exceed $2,100 (60% x
$3,500).

By contrast, a salaried employee with the
exact same income of $5,000 a month would be able to borrow to the
point where his loan repayments are up to $3,000 (60% x $5,000) a
month.

MSR

HDB buyers face another hurdle—the Mortgage
Servicing Ratio (MSR), which limits home loan repayments to 30% of
a salaried borrower’s gross monthly income. The MSR is applied to
anybody who’s taking out a loan to buy HDB property or ECs.

Self-employed people’s income is subject to a
haircut of 30% before the MSR is applied.

That means a self-emloyed person earning
$5,000 a month will again have his income taken to be $3,500 before
the MSR is applied, just like in the previous TDSR situation.

Knowing this rule can let you use it to your
advantage, however. In the year before you’re due to apply for a
home loan, you want to make sure you raise your income as much as
possible. As a self-employed person, you have some control over how
much work you want to take on, so really ramp it up.

Once the loan is secured, you can go back to
your previous workload if you wish so long as you can still
comfortably make your home loan repayments.